Wal-Mart pulls out of South Korea on `sluggish' business

US giant Wal-Mart Stores, the world's largest discount store chain, will sell its South Korean business to local retail group Shinsegae for 825 billion won (US$874 million), officials said yesterday.

Shinsegae, which operates discount chain E-Mart as well as department stores, said it would buy all 16 outlets run by Wal-Mart in South Korea in a bid to expand its discount store business.

Under the deal, the stores will be absorbed by E-Mart and operate under the E-Mart brand name. The US chain has invested 812 billion won since it opened its first store in South Korea in 1998.

The deal, which requires government approval, came a month after French retail giant Carrefour sold its Korean unit to local clothing-maker and distribution group Eland for US$1.9 billion.

Shinsegae's stock rose 6.6 percent to 460,000 won as investors cheered its expansion drive while rival Lotte Shopping fell 4.6 percent to 17,500 won while the overall market was down 2.46 percent.

The retail firm is a part of the Samsung Group, South Korea's biggest conglomerate.

E-Mart said the deal would consolidate its leading position in the crowded domestic market where competition has forced the exit of foreign rivals.

As a result, E-Mart will increase the number of outlets to 102 including seven in China. E-Mart will absorb all 3,356 Korean workers hired by Wal-Mart.

"With the acquisition of Wal-Mart stores, we will secure the ground for our stable business at home. This will also help us step up our operations in China," Shinsegae president Koo Hak-seo told reporters.

E-Mart currently accounts for 34 percent of South Korea's discount store market.

Lotte Mart, a unit of Lotte Shopping, was second with 19 percent, followed by Samung Tesco Homeplus, a joint venture between Samsung Group and Britain's Tesco Plc and E-Mart, with 14 percent.

Wal-Mart entered South Korea in 1998, but its business here has been sluggish, posting a net loss of 9.9 billion won last year. Its market share last year stood at four percent.

Announcing its withdrawal earlier this year, Carrefour said it would shift its focus to China after 10 years of lackluster performance in South Korea.

After opening its first store in 1996, Carrefour Korea has invested some 1.5 trillion won over the past 10 years but had never managed to make real headway against its local rivals.

Wal-Mart also attributed its withdrawl from South Korea to competition and poor sales but vowed to maintain its procurement unit here for global sourcing.

The exit of Wal-Mart and Carrefour, the world's first and second largest retail groups, comes amid growing anti-foreign sentiment stirred by big profits some foreign investors have realized in recent years.

But Chung Sye-kyun, minister of commerce industry and energy, said South Korea welcomed foreign investment and was streamlining investment procedures in a bid to attract more.